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Crackdown
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FOR IMMEDIATE RELEASE
WEDNESDAY, MARCH 6, 2002
WWW.USDOJ.GOV |
TAX
(202) 514-2007
TDD (202) 514-1888 |
DEPARTMENT OF JUSTICE FILES SUITS
ACROSS THE COUNTRY IN CRACKDOWN ON SO-CALLED "TRUST" SCHEMES
"Trust" Schemes Nationwide
Cost Treasury Nearly $3 Billion Annually
WASHINGTON, D.C. - The Department of Justice announced today that
it has filed lawsuits in San Diego, Boston, and Cincinnati as part
of a campaign to stop the spread of phony trust schemes which the
government contends are being used illegally to evade the payment
of taxes. The lawsuits are the latest installments in a government
crackdown on the promoters of bogus tax scams.
"Today's technology has made marketing tax fraud schemes incredibly
easy," said Eileen J. O'Connor, Assistant Attorney General
in charge of the Department's Tax Division. "With the filing
of these suits, the Tax Division takes another step in its efforts
to stop the proliferation of bogus "trusts" and other
tax cheating schemes. While the promoters of these schemes say they
lead to tax savings, they can lead instead to substantial penalties,
including a prison sentence."
In one of the cases filed today, the government alleged that a
promoter charged customers several thousand dollars each to set
up trusts and transfer the customers' property into the trusts.
The complaint alleges that the trusts were then used to illegally
claim tax deductions for personal expenses such as utility payments,
gardening expenses, and home maintenance costs, and to avoid reporting
and paying tax on income.
In the complaint filed in San Diego, the Justice Department alleges
that Roderick Prescott, of Solana Beach, California, through businesses
named "Trust Educational Services" and "National
Trust Services," sold hundreds of sham trust schemes. Prescott
and his businesses sold trust packages for as much as $15,500. The
complaint also alleges that Prescott's activities have cost the
Treasury more than $135 million so far.
In the Boston case, the government alleges that Kevin Mahoney of
Attleboro, Massachusetts, promotes sham trust schemes through businesses
named "the Citadel Group," "Cornerstone Financial
Group," the "National Association of Certified Estate
Planning Attorneys," and "the Liberty Network." The
complaint alleges that Mahoney sold his trust materials for more
than $3,500. The government filed a similar suit in federal court
in Chicago last month against two alleged operators of the same
scheme: Michael D. Richmond and Rex E. Black.
In the suit filed in Cincinnati, the government alleges that Robert
Welti, an accountant in Ripley, Ohio, prepared tax returns for clients
across the country that claimed improper tax deductions or failed
to report income which resulted in estimated tax losses of over
$3 million per year. According to the complaint, Welti charged his
clients $2,400 to prepare tax returns based on the bogus trust schemes.
The complaint states that although Welti's clients come from 20
different states, they all rely on trusts to evade taxes that use
the same address in Belize, a "tax haven" country.
Last year, 45 people were convicted for tax evasion because of
their participation in phony trusts. Defendants who were sentenced
to prison faced sentences averaging more than five years. As of
December 31, 2001, the IRS had 160 open criminal investigations
involving trust schemes.
If someone claims that a trust will lead to lower taxes, here are
some warning signs that the scheme could instead lead to prison:
- deductions for personal expenses paid by the trust.
- depreciation deductions for a personal residence.
- high fees for trust packages, to be made up by promised tax
benefits.
- lack of an independent trustee.
- use of terms like "pure trust," "constitutional
trust," "sovereign trust," "unincorporated
business organization," or "common law trust."
IRS Commissioner Charles Rossotti said "Promoters can entice
taxpayers into abusive trust schemes by making promises that are
too good to be true. Getting involved in such schemes can be a costly
mistake for taxpayers. Before entering into any arrangements, make
sure you consult with a reputable, trusted tax professional for
advice. Taxpayers who want to report possible schemes can call the
IRS at 1-800-829-0433." The IRS estimates that abusive trust
schemes cost the public about $3 billion every year.